Who’s liable if tenants cause damage?

Who’s liable if a tenant carelessly, but accidentally, spills red wine on the floor or chargrills the kitchen?

Exactly who’s liable for damage to a rental property has been the subject of a long-running court case. Last year, the Court of Appeal held tenants aren’t responsible for accidental damage if it’s already covered by the landlord’s insurance. What’s more, tenants can’t be required to pay the insurance excess on the landlord’s behalf.

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The case, Holler and Rouse v Osaki, stemmed from a fire at a property owned by Mr Holler and Ms Rouse, and tenanted by the Osaki family. The fire was caused by a pot of oil left unattended on the stove and resulted in more than $216,000 worth of damage.

The landlords were insured by AMI Insurance, which paid for the repairs, but then went after the Osaki family to recoup its costs.

Central to the case was the tension between the Residential Tenancies Act and the Property Law Act. The first act stipulates tenants must ensure the property isn’t intentionally or carelessly damaged; the second prevents tenants from being held liable for accidental damage if the damage is already covered by the landlord’s insurer.

The courts found the Property Law Act provisions applied to a residential property and held the Osaki family wasn’t liable for the repair costs.

But the outcome irked property investors who lobbied for a change to the law. The government responded by introducing a bill that will change the current state of affairs and make tenants liable for the cost of their landlord’s insurance excess up to a maximum of 4 weeks’ rent for any damage caused by carelessness.

Tenants still can’t be held liable for normal wear and tear. Nor are they liable for damage caused by natural disasters.

Intentional damage is another matter. Tenants can be held liable for repairs if they (or one of their guests) intentionally damage the property or cause damage while participating in a criminal offence.

In some circumstances, tenants may have to bear some of the cost if the property needs repair but they fail to inform their landlord. If they allow the damage to deteriorate further, the landlord may be able to claim back costs. If the landlord discovers the damage at the end of the tenancy, they can make a claim on some or all of the tenant’s bond.

If the parties can’t agree, the matter can be taken to the Tenancy Tribunal for resolution.

The Residential Tenancies Amendment Bill (No 2), which will change the law and make tenants liable for careless damage, was introduced into parliament in May. The public will have the opportunity to make submissions when it’s referred to Select Committee.